Forestry a lost opportunity to recover from virus

Covid-19 is an opportunity to accelerate New Zealand’s long journey from volume to value and build an economy that looks after people and the environment.

We’re sitting on a significant opportunity, thanks to our forest and wood processing sector — our oldest export industry, built on a renewable natural resource of great value globally.

There’s untapped potential to grow jobs and attract investment to regions, producing value-added, innovative, sustainable products for world markets that want less plastic, less pollution and no carbon. Instead, our wood processing firms are going out of business because they can’t secure a fair-priced supply of logs grown in their own backyards.

China is our biggest buyer of raw logs, accounting for 85 per cent of log exports. It’s one of many countries that give their log processing sector handouts such as preferential loans, tax breaks and exemptions. This frees up cash for them to send log traders here to pay the highest price for New Zealand’s raw material. This industrial subsidy behaviour is prohibited under World Trade Organisation rules.

The impossibility of securing an economic log supply has resulted in the closure of six regional mills over the last 12 months. Since December, about 1000 small town workers have lost their jobs.

Now, the high premiums being offered by a revived Chinese market threaten the ability of our local processors to get up to speed with a Covid-19 recovery. The situation is also a disincentive for outside investment. Why invest in the New Zealand timber processing industry when that industry, according to recent NZ Government research, must pay the highest global prices for logs?

Forestry Minister Shane Jones is working to address this skewed market with the Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill, which seeks to ensure foreign log traders give domestic processors a fairer deal. The Bill has stirred a flurry of opposition from forest owners around imposing “pointless and costly” bureaucracy on the forestry industry which, unlike other primary sectors, is unregulated when to comes to trade.

The assumption is there is free and fair trade in our domestic market. But even the Government’s research acknowledges trade distortion is happening. Indeed, because of this behaviour 39 countries have banned export of raw logs to support their domestic industries as well as for environmental reasons. So, if our logtrading peers have cottoned on to what’s happening, why haven’t we?

In the past New Zealand forest owners and mills had long-term supply/price arrangements, providing confidence of price and supply, stimulating investment.

Over the past 10 years, since overseas interests with government handouts have started aggressively buying logs here, the price has risen. Supply arrangements have become shorter and shorter: many are now no longer than a few months. This is hopeless if you are looking to invest in your firm and your employees.

Our forests are 96 per cent privately owned thanks to the privatisations of the 1980s. In almost all competitor countries, government is the majority owner and can dictate its uses over the long term.

Not that we’re opposed to private ownership or exports of raw logs. We just want security of price and supply.

China and New Zealand have strong trade relations. But the fact that we are the last major supplier to allow open export of logs has left us vulnerable. Russia, which dominated the scene, has imposed tariffs. The US, Canada and Scandinavian countries use laws and regulatory measures to help domestic processors compete for logs.

International trade in logs is relatively thin compared to the market for processed wood products. This partly reflects the low value-to-weight ratio of logs — making international trade in logs less economic compared to higher-valued products. Only 6-7 per cent of global log production is traded internationally. But we export between 50 per cent and 60 per cent of our raw logs.

We believe wood processing and manufacturing is a major driver of economic growth in a post-Covid-19, carbon-constrained world, and a significant feature of the country’s diverse and high-value export profile of the future.

Where our competitors don’t always stick to the rules, we need new thinking in the form of domestic regulation to underpin growth across our wood processing and all manufacturing sectors.